The insurance market is playing a crucial role in the economic development of Bangladesh through its risk sharing operations which motivate various investments in many important business sectors in the country. The Insurance Act, 2010 in a replacement for the previous Insurance Act, 1938, and the Insurance Development and Regulatory Authority Act, 2010 as well have been passed for establishing a stronger insurance market in Bangladesh. Insurance means a co-operative system to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against the risk. Risk can be described as uncertainty of a financial loss. In other words, insurance is a sum of money as a premium which is paid in consideration of the insurer’s incurring the risk of paying a large sum, upon a giver, contingency. This is mainly a contact/an arrangement by which a company/organisation undertakes to provide a guarantee of compensation for any specific loss, damage, or death in return for payment of a specified premium.
Under the Insurance Act 2010 in Bangladesh, there are two classes of insurance businesses which are Life Insurance and Non-life Insurance. Life insurance includes the insurance agreements about human life and non-life insurance includes entire classified insurance contracts except insurance contracts about human life. Both life and non-life insurance are governed by Insurance Development & Regulatory Authority Bangladesh (IDRA) in Bangladesh under the Act 2010. Every company (both local and foreign) which is interested to conduct life insurance or non-life insurance businesses in Bangladesh shall have to apply to IDRA in order to obtain registration certificate to run insurance business in Bangladesh.There are a number of multinational and foreign-owned companies who are willing to procure insurance and reinsurance for their project from any insurance companies outside Bangladesh which is known as overseas insurance.
No company/person shall insure outside Bangladesh any risk of property or interest in Bangladesh unless a no objection certificate has been obtained from IDRA to the effect that the risk cover cannot be insured in Bangladesh.
The IDRA may exempt any person/company from the rules regarding the overseas insurance as mentioned above in relation to such property or interest and for such period as IDRA may deem fit. If IDRA refuses to deliver such no objection certificate then the authority shall inform its decision in writing to the applicant within 15 days from the date of such application.
As reported in the daily Financial Express newspaper on 23rd October 2017, IDRA has issued no objection certificate (NOC) in favour of Rampal power plant project allowing it to buy insurance from abroad as per the laws of Bangladesh. IDRA took the decision to get overseas insurance explaining that the implementation agreement exempted the company from purchasing insurance or reinsurance from Shadharan Bima Corporation (SBC) or any other company in Bangladesh. The agreement gave sole discretion to procure insurance and reinsurance for the project from any insurance companies outside Bangladesh. Padma Bridge project and another LNG project also got permission to buy overseas insurance.
Along with overseas insurance there is another important aspect of the insurance which is known as reinsurance.
Any insurance company as per the laws of Bangladesh may reinsure with any other insurer relating to any liability commenced from any contract or insurance policy in Bangladesh or in the overseas relating to the interest of insurance policy holder and insurer. IDRA may direct in writing to any re-insurer, if required, for the submission of necessary information whether sufficient money and assets are available in order to meet the demand for the policy.Reinsurance is the transfer of some or all of an insurance risk to other insurer/insurers. The company transferring the insurance risk is called the "ceding company" and the company receiving the insurance risk is called the "re-insurer."
In accordance with the law, fifty per cent of the re-insurable general insurance business shall be re-insured with SBC and the remaining fifty per cent of such business may be re-insured either with the SBC or with any other insurer whether in or outside Bangladesh. The whole or any part of the re-insurable life insurance business may be re-insured with any other insurer outside Bangladesh.
With regards to any public project in Bangladesh, fifty per cent of all insurance business relating to any public property or to any risk or liability relating to any public property shall be placed with SBC and the remaining fifty per cent of such business may be placed either with SBC or with any other insurer in Bangladesh. Any agreement/policy of insurance taken or issued in contravention of the law shall be void.
As per the law, “public property” is any movable or immovable property which belongs to the government or the protection of which is the legal responsibility of the government or which belongs to any company, firm, institution, organisation or other establishment which is managed or controlled by the government or in which the government solely or jointly with a local authority or with any company, holds controlling financial share or interest.
property also means a project financed out of an external loan or with external aid until it reaches-
(i) in the case of an industrial project, the stage at which it is capable of commencing normal production;
(ii) in the case of any other project, the stage at which it is capable of being put to the use for which it is intended.
A Memorandum of Agreement has been executed between SBC and Private Insurance Companies in 1990 in respect of sharing the insurance business relating to Public Property or to any risk or liability appertaining to public property.
As per the Agreement between SBC and all other Insurance Companies of Bangladesh, it states that:
“None other than Shadharan Bima Corporation shall underwrite any general insurance business relating to any public property or to any risks of liability appertaining to Public Property.”
Therefore, the total 100 per cent of any insurance appertaining to any public property shall be only placed with SBC. This Memorandum of Agreement, till date, is valid and is enforceable in Bangladesh and the Agreement is not yet suspended/repealed by any other law. Therefore, total 100 per cent of any insurance appertaining to any public property shall be only placed with SBC. As per the agreement, SBC will solely issue insurance policy for public property but will share the premiums with the private insurers.
The SBC has been the sole re-insurer in Bangladesh for a long time and the private insurance companies in Bangladesh were compelled to place 100 per cent of their reinsurance business with SBC as per the law. However, in 1990 the government amended the relevant provisions of the Insurance Corporation Act 1973 allowing 50 per cent of all reinsurance of general insurance business to be placed mandatorily with SBC and the rest to private reinsurance companies. The relaxation of the provision for reinsurance with SBC and the permission of reinsurance in both outside and inside Bangladesh have given a significant opportunity to take re-insurance coverage from renowned re-insurers under the latest Insurance Act 2010.
To conclude this matter, we can say that no company (both local & foreign owned) in Bangladesh can insure in the foreign countries any risk of property which is situated within the Bangladesh jurisdiction without the permission of IDRA. Any insurance company may reinsure with any other insurer in Bangladesh or in the overseas relating to liability and the specific rules regarding the reinsurance has been described above. Finally, we can confirm that presently the total 100 per cent of any insurance relating to any public project shall be only placed with SBC who shall arrange all the insurance relating to the public property. The concept of overseas insurance, reinsurance and insurance relating to public property are very important factors for a competitive modern insurance business in Bangladesh.
The Insurance Act 2010 in Bangladesh does not have any specific rule in relation to the permission obtained from IDRA to insure the risk of the property in the foreign countries. There are no rules/regulations/guidelines which can specify what are the documents required to obtain the permission from IDAR regarding such exemption. There are no rules/ regulations/ guidelines to specify what are the grounds and restrictions to grant such permission from IDRA regarding the exemption. Therefore, we are of the view that IDRA should introduce such rules/regulations/guidelines regarding the exemption to insure the risk of property out of Bangladesh.
The writer is a Barrister at Law, an Advocate of the Supreme Court of Bangladesh and a Junior Partner at FM Associates. He may be reached at: email@example.com.